Good News Turns Bad In Volatile Stock Market Sell-Off

Good news wasn’t good enough for stock market participants who saw a mostly positive September nonfarm payroll report as not good enough, and began selling away.

Unemployment was down, hourly earnings were higher, and 263,000 new jobs hit the marketplace – all good for the economy.

But bad news in the eyes of central bankers who are pushing monetary policy intent on hobbling the economy to bring down inflation. That contradiction to the good payroll report was bad news to the stock market which was down across the board from the opening bell.

Good news sours in Friday stock market sell-off

September didn’t end well across the stock market.

For the final month of the third quarter, the three major indexes were down.

The Nasdaq paced the losses with a 6.29% drop to 11,073.31 for September, losing 742.89 points. The S&P 500 followed suit with a 5.32% drop to 3,744.52, shedding 210.48 points. The Dow rounded out the losing month with a 5.03% drop to 29,926.94 points, down 1,583.49 for the period.

All three major indexes are down for the year, keeping alive bear market sentiment heading into the final quarter of 2022.

All those bad stats withstanding, traders might anticipate a solid September payroll report would provide a boost to close out the first week of the fourth quarter.

Unfortunately, good news was bad news for market participants looking for a weak payroll report to cool off hawkish Fed plans to raise benchmark interest rates.

Rate-setting Fed policymakers sent a clear message in September with a 75 basis points raise in rates. Aggressive plans to tame inflation remain in place and the central bankers do not anticipate a soft landing for the economy.

After its .75% (75 basis points) rate hike last month, the Fed anticipates raising interest rates further through 2023, to a level as high as 4.6%. The latest hike raised the target range for the federal funds rate for the fifth time this year, bringing the target range to 3% to 3.25%.

Payroll report, oil cue Friday sell-off

Simpler’s traders hold to an old trading adage, “Don’t lose your ass on a Friday.”

This Friday took a bite out of many behinds who weren’t paying attention.

In the market today, the Dow closed at 29,296.79 points to fall 2.11% (dropping 630.15 points on the day). The Nasdaq dropped to 10,654.14 points for a 3.78 % gash down while the S&P 500 crumbled 2.78% to 3,640.38 points.

Heavy selling – the Dow was down by more than 747 points in the final hour of trading Friday – was spurred by a negative response to the arguably solid September nonfarm payroll report. Market participants weren’t convinced the news would push the Fed to pivot from stifling plans to rein in 40-year high inflation.

Oil also fueled selling to close the week. Oil was up by almost 5%, closing at $92.52 per barrel for a 4.64% gain. Foreign oil production cuts were announced midweek with the Organization of the Petroleum Exporting Countries (OPEC+) gashing production by 2 million barrels per day.

With a rise in oil prices across the markets, gasoline prices are expected to increase as consumers face more everyday expenses.

Fear was noticeable in the market today with the Volatility Index (VIX) jumping more than 3% to above 31. Above 20 on the “fear” index is considered high volatility.

The U.S. dollar (DXY) didn’t help matters during the open session Friday. The dollar pushed toward $113 on the day. Stock market history indicates that as DXY moves higher the markets go down. DXY measures the rise and fall of the dollar relative to a collection of foreign currencies related to U.S. trade partners.

Plan ahead for more rough waters

Relief from selling pressure and outside market influences – inflation, Fed monetary tightening policy, or struggling economies– won’t come anytime soon.

Next week holds a variety of economic data releases, Fed speeches, and earnings season begins. Seeds of caution are already being planted for earnings reports with major companies, such as chipmaker Advanced Micro Devices (AMD), offering guidance that third quarter performance estimates will miss market expectations.

Simpler’s traders next week are watching earnings reports; U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) numbers; FOMC minutes release (for September meeting), and University of Michigan Consumer Sentiment Index to close out the week.
Simpler’s traders plan to stay on top of stock market action as it unfolds next week.